Credit Management Strategies and Loan Performance of Deposit-Taking SACCOs in Nairobi City County, Kenya
DOI:
https://doi.org/10.53819/81018102t2608Abstract
Despite prudential requirements and risk-based supervision by the SACCO Societies Regulatory Authority (SASRA), 63% of deposit-taking SACCOs (DT-SACCOs) report non-performing loans totalling KES 2.67 billion, 29% have been delicensed, and the non-performing loan (NPL) ratio in Nairobi County was 8.66% against a 5% ceiling. This study examined the effect of credit management strategies on loan performance of DT-SACCOs in Nairobi City County, Kenya. Anchored on information asymmetry theory, the study conducted a descriptive cross-sectional census of all 64 licensed DT-SACCOs, obtaining 61 usable questionnaires from credit managers (95.3%). Credit management strategies comprised loan portfolio diversification, debt collection strategies, and internal controls and policies; loan performance was measured by the NPL ratio, controlling for DT-SACCO age, capital adequacy and technology adoption. Primary data were combined with audited 2024 financial statements and analysed using descriptive statistics and multiple linear regression. All three strategies had a negative and significant effect on the NPL ratio, with debt collection the strongest predictor. Among the controls, technology adoption was negative and significant at 5% and capital adequacy at 10%. The model explained 67.8% of the variation in the NPL ratio. It concludes that credit management strategies significantly improve loan performance and no single strategy suffices alone. It recommends that DT-SACCO boards institutionalise multi-channel debt recovery, systematic diversification and documented internal controls and invest in digital credit infrastructure; that the Kenya Union of Savings and Credit Co-operatives sponsor continuous loan-officer training; and that SASRA, the Central Bank of Kenya and credit reference bureaus strengthen credit information sharing.
Keywords: Credit management strategies, Debt collection, Internal controls, Loan performance, non-performing loans, Deposit-taking SACCOs.
References
Akerlof, G. A. (1970). The market for "lemons": Quality uncertainty and the market mechanism. The Quarterly Journal of Economics, 84(3), 488–500.
Alavi, M., Biros, E., & Cleary, M. (2024). Notes to factor analysis techniques for construct validity. Canadian Journal of Nursing Research, 56(2), 164–170. https://doi.org/10.1177/08445621231204296
Ali, D. E., & Ndede, F. S. (2024). Credit management practices and financial performance of deposit taking savings and credit co-operative societies in Marsabit County, Kenya. International Academic Journal of Economics and Finance, 4(3), 410–446.
Ariyo, G. K. (2023). Credit management and financial performance of financial institutions: A case study of Centenary Bank, Gulu Branch. Metropolitan Journal of Business and Economics, 2(9), 84–98.
Central Bank of Kenya. (2024). Financial stability report 2024. Central Bank of Kenya.
Commissioner for Co-operative Development. (2025). Gazette notice: Appointment of inquiry team into Metropolitan National Sacco Society Limited. Ministry of Co-operatives.
Connelly, L. M. (2008). Pilot studies. Medsurg Nursing, 17(6), 411–412.
Cronbach, L. J. (1951). Coefficient alpha and the internal structure of tests. Psychometrika, 16(3), 297–334.
Fadun, O. S., & Silwimba, P. (2023). Does credit risk management impact the financial performance of commercial banks? International Journal of Business Ecosystem & Strategy, 5(2), 55–66.
Fidelis, A., & Umoffong, N. J. (2020). Effect of credit management policy on financial performance of listed consumer goods companies in Nigeria. Research Journal of Finance and Accounting, 11(10). https://doi.org/10.7176/RJFA/11-10-17
Field, A. P. (2018). Discovering statistics using IBM SPSS statistics (5th ed.). SAGE Publications.
FSD Kenya. (2021). The future of digital credit in Kenya: Consumer protection and market conduct in digital lending. https://www.fsdkenya.org/publication/the-future-of-digital-credit-in-kenya/
Gachenga, J. N., Muthoni, D. K., & Metto, W. K. (2025). Credit management practices, firm size and financial sustainability of deposit-taking savings and credit cooperative societies in Kenya. Financial Studies, 29(2), 6–22.
Gachenga, J. N., Wambu, C. K., Kinyariro, D. K., & Maina, J. N. (2023). Lending decision, SACCO size and liquidity of farmers deposit taking savings and credit co-operatives in Kenya. Financial Studies, 27(3), 57–70.
Gachini, E. N. (2021). Credit risk management and its effect on the profitability of commercial banks in Kenya [Master's thesis].
Gatimu, E. M. (2022). Effect of management practices on non-performing loans in deposit taking savings and credit cooperatives in Kenya: A management perspective. Jomo Kenyatta University of Agriculture and Technology.
George, M. O., & Sile, I. (2017). Effects of debt collection practices and credit risk governance. Stratford Peer Reviewed Journals and Book Publishing.
Gujarati, D. N., & Porter, D. C. (2009). Basic econometrics (5th ed.). McGraw-Hill.
Hair, J. F., Black, W. C., Babin, B. J., & Anderson, R. E. (2019). Multivariate data analysis (8th ed.). Cengage Learning.
Hertzog, M. A. (2008). Considerations in determining sample size for pilot studies. Research in Nursing & Health, 31(2), 180–191.
International Co-operative Alliance. (2022). 2021 annual report. International Co-operative Alliance.
Kamande, E. W. (2023). Firm characteristics, credit management practices and loan performance of deposit-taking SACCOs in Nairobi City County, Kenya.
Karanja, M. W., & Wamugo, L. (2024). Credit risk management practices and profitability of regulated digital credit providers in Kenya. Journal of Finance and Accounting, 101–116. https://doi.org/10.53819/81018102t3104
Kenya National Bureau of Statistics. (2022). 2019 Kenya population and housing census: Analytical report on population projections. KNBS.
Kwashie, A. A., Baidoo, S., & Ayesu, E. K. (2022). Investigating the impact of credit risk on financial performance of commercial banks in Ghana. Cogent Economics & Finance, 10(1). https://doi.org/10.1080/23322039.2022.2109281
Maina, J. N., Kiai, R. M., & Kyalo, T. N. (2020). Credit management practice, SACCO size and financial sustainability of deposit taking saving and credit co-operatives in Kenya. Journal of Accounting, Finance and Auditing Studies, 6(3), 175–192.
Mboe, A., & Kavale, S. (2023). Credit management and financial performance of micro-financial institutions in Mombasa County, Kenya. The Strategic Journal of Business & Change Management, 10(4), 261–272. http://dx.doi.org/10.61426/sjbcm.v10i4.2748
Mugenda, O. M., & Mugenda, A. G. (2003). Research methods: Quantitative and qualitative approaches. Acts Press.
Muriithi, M. N. (2019). Factors contributing to loan defaulting among savings and credit societies in Kirinyaga County, Kenya. Dedan Kimathi University.
Muriithi, P. K. (2023). Regulatory framework and financial intermediation efficiency of deposit taking savings and credit cooperative societies in Kenya. Jomo Kenyatta University of Agriculture and Technology.
Nabiba, M., & Miroga, J. (2024). Credit management practices and loan portfolio performance of deposit taking SACCOs in Nairobi City County, Kenya. The Strategic Journal of Business & Change Management, 11(4), 776–797. http://dx.doi.org/10.61426/sjbcm.v11i4.3118
Nyabwari, J. O. (2023). Credit management practices and loan performance among deposit-taking SACCOs in Nairobi City County, Kenya [Master's thesis, Kenyatta University].
Odongo, L. J., Koori, J., & Makori, D. (2025). Credit management practices and bad debt levels of microfinance institutions in Nairobi City County, Kenya. Journal of Finance and Accounting, 9(1), 59–73. https://doi.org/10.53819/81018102t3116
Onsongo, L. M., Miroga, J., & Otinga, H. (2025). Credit management practices and financial performance of deposit taking SACCOs in Nairobi City County, Kenya. The Strategic Journal of Business & Change Management, 12(2), 117–140. http://dx.doi.org/10.61426/sjbcm.v12i1.3204
Robson, C., & McCartan, K. (2016). Real world research: A resource for users of social research methods in applied settings (4th ed.). Wiley.
Rothschild, M., & Stiglitz, J. E. (1976). Equilibrium in competitive insurance markets: An essay on the economics of imperfect information. The Quarterly Journal of Economics, 90(4), 629–649.
Sacco Societies Act, No. 14 of 2008. Laws of Kenya.
SASRA. (2021). SACCO supervision annual report 2020. SACCO Societies Regulatory Authority.
SASRA. (2022). SACCO supervision annual report 2021. SACCO Societies Regulatory Authority.
SASRA. (2023). The SACCO supervision annual report, 2023. SACCO Societies Regulatory Authority. https://www.sasra.go.ke/download/sacco-supervision-annual-report-2023/
SASRA. (2024). SACCO supervision annual report 2023. SACCO Societies Regulatory Authority.
SASRA. (2025). List of licensed and authorised SACCO societies in Kenya for the financial year ending 31st December 2025. SACCO Societies Regulatory Authority.
Spence, M. (1973). Job market signaling. The Quarterly Journal of Economics, 87(3), 355–374.
